What is an S Corporation?
An S Corporation is a corporation that elects to pass income directly to shareholders without paying federal corporate taxes. To qualify, it must be incorporated in the US, have one class of stock, and not have over 75 shareholders. S Corporations have tax and legal advantages over C Corporations and LLCs for small businesses. However, they also have strict requirements on shareholders and stock that business owners must follow to maintain S Corporation status. If the IRS finds an S Corporation non-compliant on shareholder rules, it can revoke S Corporation status and charge back taxes. Key requirements are: shareholders must be US citizens or permanent residents, no other corporations can hold shares, and only one class of stock can be issued. Overall, S Corporations can provide tax savings but require diligent adherence to all legal and tax regulations.
Can You Have Two Businesses Under an S Corporation?
You can have two businesses under an S Corporation by using separate DBAs or divisions. Each business would need to track income and expenses separately. The S Corporation would file one tax return, reporting income from both businesses. Some considerations are containing liability risks if one business is riskier, and paying only one set of payroll taxes. Consulting a business lawyer or accountant can help determine the best structure.
Limit on Owners of an S Corporation
The IRS limit on the number of shareholders for an S Corporation is 75. Shareholders must be US citizens or permanent residents, and no other corporations can hold shares. Husbands and wives are counted as one shareholder. Overall, S Corporations can provide tax savings but require diligent adherence to all legal and tax regulations.
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